Pure Storage, Inc. (PSTG) in Mountain View, Calif., is a global technology and data storage solutions provider. The company has been named as a Leader in the Magic quadrant for Primary Storage list by Gartner for eight consecutive years. It was also ranked #1 in Containers in 2021 Gartner’s Critical Capabilities for Primary Storage list.

PSTG’s impressive third-quarter performance drove the stock to its all-time price high last month. The company’s revenues increased 37% year-over-year to $562.70 million in its fiscal 2022 third quarter (ended October 31, 2021). This can be attributed to a 38% rise in subscription revenues. The stock has gained 37% year-to-date to hit its $32.56 all-time high on November 30. Furthermore, the stock is currently trading above its 50-day and 200-day moving averages of $27.17 and $22.56, respectively, indicating a golden-cross uptrend.

However, the company’s operating loss came in at $18.10 million in the last quarter, while net loss amounted to $28.73 million. Its loss per share stood at $0.10, and its  total cost of goods sold increased 40.2% from the same period last year to $187.95 million due to the ongoing semiconductor shortage and shipping delays.

Here is what could shape PSTG’s performance in the near term:

Solid Growth Prospects

Analysts expect PSTG’s revenues to improve 24.2% in the current quarter (ending January 2022), 24.3% in the current year, and 17.5% next year. The consensus EPS estimates indicate a 92.3% year-over-year rise in the current quarter, a 200% increase in the current year, and 21.7% growth next year. Also, the Street expects PSTG’s EPS to increase at a 76.7% CAGR over the next five years. The company has an impressive earnings surprise history; it beat Street EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of non-GAAP forward P/E, PSTG is currently trading at 48.89x, which is 101.9% higher than the industry 24.22x average. Its forward Price/Sales and Price/Cash Flow ratios of 4.15 and 26.93, respectively, are higher than the 3.97 and 22.19 industry averages.

Also, PSTG’s 29.59 forward EV/EBITDA multiple is 84.3% higher than the 16.06 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the 15 Wall Street analysts that rated PSTG, 13 have rated it Buy, while two have rated it Hold. The 12-month median price target of $35.20 indicates a 14.9% potential upside from yesterday’s closing price of $30.63. The price targets range from a low of $33.00 to a high of $40.00.

POWR Ratings Depict Uncertainty

PSTG has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

PSTG has a Stability grade of C and a Value grade of D. The stock’s 1.38 beta is in sync with the Stability grade. In addition, PSTG’s higher-than-industry valuation justifies the Value grade.

Of the three stocks in the A-rated Technology – Storage industry, PSTG is ranked last.

In total, we rate PSTG on eight distinct levels. Click here to view additional PSTG ratings for Growth, Momentum, Sentiment, and Quality.

Bottom Line

The growing big data industry has increased the demand for technology and data storage companies over the past few years. Given the rapid digitization of virtually every industry and the rising adoption of artificial intelligence, this trend will likely continue. However, due to the increasing concerns regarding the rapid spread of the COVID-19 omicron variant, the broader markets have been witnessing a pullback, as evident in the S&P 500 index’s 3.7% decline over the past five days. Because the markets are expected to remain volatile over the near term, the relatively overvalued PSTG stock might slump. Thus, we think investors should wait until the markets stabilize before investing in PSTG.

How Pure Storage, Inc. (PSTG) Stack Up Against its Peers?

While PSTG has a C rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Teradata Corporation (TDC) and NetApp, Inc. (NTAP), which have an A (Strong Buy) and B (Buy) rating, respectively.

PSTG shares were trading at $31.56 per share on Thursday afternoon, up $0.93 (+3.04%). Year-to-date, PSTG has gained 39.58%, versus a 23.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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